When SEBI announced allowing direct applicants too apply for mfs without any load or cut, it was seen to be a revolutionary step much resented by agents and fund houses alike. Though a rare few do direct purchases the trend will take some time to catch on.
What most people wondered then was about why IRDA, an agency meant to regulate the insurance industry did not take similar steps to protect small investors, from the ulip and insurance swindles involving misselling of ulip products by agents as safe bets with fancy market based returns assumptions, having a lockin of only 3 yrs. The commissions and loads mfs paid out, was minuscule say 2.5% max in comparison to some first premium commissions especially in case of ulips (including or excluding other costs and charges) that were between 40% and even to 75% in one instance if i remember right.
Thankfully Livemint reports
“Irda recommended in July that following the amendment of the Insurance Act, the regulator must get the power to make it mandatory for life insurance companies not to charge agent’s commission to a customer who buys a policy directly,” said the Irda official, who did not want to be named.
“There is a clear case that customers who apply directly to buy a policy should not be charged the same way as others who come through agents. Lowering the charges for direct customers will also ensure a healthy relationship between the customers and their insurance companies,” said R. Kannan, member (actuary), Irda. “The matter is before Parliament at the moment.”
Investments in Ulips involve several charges such as an initial administration charge or premium allocation charge, a regular administration charge, a policy administration fee and an investment management charge. Collectively these charges may eat up to 70% of the premium paid in the first year, including up to 40% of the premium as agent’s commission.
Hope it is implemented soon, as it will benefit the insurance companies the most , as most intelligent investors will start taking insurance seriously (sorry as things stand insurance is still an investment and tax savings vehicle).